China inflation slowed to 2.6% in 2012

A stall holder reaches out for a chicken in a market in Hefei in central China’s Anhui Province yesterday.

Photo: AFP

Inflation in China slowed sharply last year, official data showed yesterday, but analysts warned of increasing price risks this year that may limit scope for measures to boost economic growth.

The country’s consumer price index rose 2.6 percent last year, the National Bureau of Statistics said, down from 5.4 percent the year before.

The annual inflation figure was also lower than the government’s target of 4 percent, signaling that prices remained well under control last year.

Inflation stood at 2.5 percent year-on-year last month, the bureau said, the second straight month that the reading rose and the highest since May, when it hit 3 percent.

Rising food prices, particularly for vegetables, due to unusually cold weather were the major contributor to last month’s increase, according to the bureau.

The benign inflation environment came as China’s economic expansion slowed during the first nine months of the year, with GDP growth of 7.4 percent in the three months to the end of September — the worst in more than three years.

However, data for the final three months of the year, including manufacturing, broader industrial output and retail sales, have spurred optimism among economists that growth accelerated in the fourth quarter.

However, the fact that CPI was surging on food price spikes would limit leeway for policymakers — who are sensitive to the risk of inflation leading to social unrest — to take further easing measures to spur economic growth, analysts said.

“The central bank is concerned about underlining inflationary pressures and it is one reason they have not cut more aggressively,” said Ben Simpfendorfer, managing director of Hong Kong-based economic consultancy firm Silk Road Associates.

“So the biggest risk is this is actually a restraint on policymakers’ ability to support the economy, either through rate cuts or through more stimulus,” he said.

Policymakers cut interest rates twice last year and trimmed the amount of cash banks must place in reserve three times from December 2011 in a bid to encourage lending and pump up economic growth.

Yao Wei (姚煒), an economist with Societe Generale in Hong Kong, said that the increase in China’s sub-index of housing inflation to 3 percent last month from 2.6 percent in November, may increase policy uncertainties.

The reading — a key barometer of the country’s property market — covers leasing and decoration costs, but excludes purchase prices, based on the bureau’s definition.

“The central government may come under pressure to tighten controls on the property market once the sector shows signs of heating up, which will definitely affect the pace of the overall economic recovery,” she said.

The government has sought to curb property speculation in the past two years, with measures such as restrictions on second and third home purchases, higher minimum downpayments and annual taxes in some cities on multiple and non locally owned homes.

The moves cooled the once red-hot market, but demand remains pent-up and government monetary policy has eased in recent months.

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